"Oops, It Dropped Again"... Interest Rates on Parking Accounts Also Plummet Following Deposits

Savings Banks Show 'Temperature Difference' in Launching High-Interest Rates

Following the decline in fixed deposit interest rates, the interest rates on parking accounts (demand deposit accounts that accrue interest even if deposited for just one day) have also dropped sharply. In particular, internet-only banks that were competing by raising rates just a few months ago are now lowering their rates one after another.

According to the financial sector on the 12th, K Bank recently reduced the applied interest rate of its Plus Box from 2.6% to 2.5%, a decrease of 0.1 percentage points. Plus Box was a product that attracted the attention of the "Yetech" (deposit + investment) crowd earlier this year by offering an annual interest rate of 3% regardless of the amount up to 300 million KRW, allowing customers to benefit from interest even if deposited for just one day.

Toss Bank also adjusted the interest rate of its demand deposit account, the "Toss Bank Account," to 2.0% without any amount conditions earlier this month. Previously, it offered a 2.8% interest rate on amounts exceeding 50 million KRW, but this was uniformly lowered to 2%.

Kakao Bank’s parking account, Safe Box, currently offers an interest rate of 2.4%. Although Kakao Bank recently applied services such as "Receive Interest Immediately" to its parking accounts, its interest rate competitiveness remains lower than that of K Bank.

The fixed deposit interest rates at commercial banks remain stagnant as well. Although they have slightly increased compared to last month when they were below the base rate (3.5%), these rates feel low to financial consumers who once experienced fixed deposit rates exceeding 5%. According to the Korea Federation of Banks, the representative fixed deposit products of the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?are currently at around 3.5% to 3.75%.

The reason why deposit interest rates in the banking sector are falling like this is that there is no reason to increase deposits, which are a cost, amid a decrease in household loans due to a sluggish real estate market. The outstanding balance of household loans at banks had been declining for 16 consecutive months but slightly increased last month. A banking sector official explained, "From the bank’s perspective, deposits are a cost and a source of loan funds, but there is no reason to bear the burden without confidence that loans will increase due to a recovery in the real estate market, etc. Moreover, with the base interest rate frozen, there is no factor for deposit interest rates to rise."

However, there are differences in temperature depending on the industry sector. Secondary financial institutions such as savings banks have recently introduced high-interest parking accounts and fixed deposit products. This is to increase deposits that have flowed out due to lower interest rate competitiveness compared to commercial banks and internet-only banks. OK Savings Bank’s parking account, "OK Eut Baekman Account II," offers interest rates up to 5% depending on the amount, and Daol Savings Bank launched the "Fi Connect Account," a parking account with a maximum annual interest rate of 4%, on the same day. JT Chin-ae Savings Bank, Aekyoon Savings Bank, and others have also introduced parking account products with interest rates in the 3% range. According to the Korea Federation of Savings Banks, the average deposit interest rate of savings banks (based on 12 months) is 4%, which is higher than that of commercial banks and internet-only banks.